Lockheed Martin 2007 Annual Report Download - page 85

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Note 8 – Income Taxes
Our provision for federal and foreign income taxes consisted of the following components:
(In millions) 2007 2006 2005
Federal income taxes
Current $1,199 $ 979 $742
Deferred 107 73 24
Total federal income taxes 1,306 1,052 766
Foreign income taxes
Current 26 925
Deferred 32—
Total foreign income taxes 29 11 25
Total income taxes provided $1,335 $1,063 $791
State income taxes are included in our operations as general and administrative costs and, under U.S. Government
regulations, are allowable in establishing prices for the products and services we sell to the U.S. Government. Therefore, a
substantial portion of state income taxes is included in our Net sales and Cost of sales. As a result, the impact of certain
transactions on our Operating profit and other matters disclosed in these financial statements is disclosed net of state income
taxes. Our total net state income tax expense was $199 million for 2007, $113 million for 2006, and $92 million for 2005.
Our reconciliation of Income tax expense computed using the U.S. federal statutory income tax rate of 35% to actual
income tax expense is as follows:
(In millions) 2007 2006 2005
Income tax expense at the U.S. federal statutory tax rate $1,528 $1,257 $916
Reduction in tax expense
Closure of IRS examination (59) ——
U.S. production activity benefit (55) (21) (19)
Research tax credit (30) (9) (10)
Tax deductible dividends (32) (29) (26)
Extraterritorial income exclusion (ETI) benefit —(63) (66)
Refund claims for additional ETI benefits —(62) —
Other, net (17) (10) (4)
Actual income tax expense $1,335 $1,063 $791
In 2007, we closed Internal Revenue Service (IRS) examinations which included resolution of uncertain tax positions
associated with the 2003 and 2004 audit years and claims we filed for additional extraterritorial income tax benefits for years
prior to 2005. As a result, we recognized additional tax benefits and reduced our Income tax expense in the first quarter of
2007 by $59 million ($0.14 per share), including related interest, which reduced our effective tax rate for 2007 by 1.4%. In
2006, we recorded a tax benefit related to claims filed with the Internal Revenue Service for additional ETI benefits for sales
in previous years. Recognition of this benefit decreased Income tax expense by $62 million ($0.14 per share), and reduced
our effective tax rate for 2006 by 1.7%.
Current income taxes payable of $41 million and $243 million at December 31, 2007 and 2006, are included in Other
current liabilities on the consolidated Balance Sheet.
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